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Home Depot (pg. 3)

By Jennifer Reingold, senior writer
Last Updated: November 25, 2008: 11:44 AM ET

But the people who work inside those orange boxes have seen the biggest changes. Instead of assessing store managers on 30 metrics, the company today uses only eight, including each store's improvement in customer surveys. Blake now gives assistant managers restricted stock, has boosted the number of associates eligible for annual bonuses, and has reinstituted merit awards, which make associates who go beyond the norm eligible for a spot bonus. He also returned some of the decision-making to the stores: About 75% of the end caps (promotions at the end of an aisle) are now the choice of local and regional managers, who can use their experience to promote locally popular items., like pool salt in the Southlake, Texas, store. (Saltwater pools are popular in the Sunbelt.)

For Blake, it's obvious that employee morale is a more sensitive issue in retail than in some other industries. "Whoever was in the factory manufacturing the Styrofoam cup," he says, "if this person had a good or bad day, it's not going to impact my enjoyment of the cup. But part of your experience of our company is determined by whether an associate feels valued. So investing in our associates is the right thing to do." Probably the most significant demonstration of Blake's store focus is the company's "aprons on the floor" program. The goal has been to boost in-store employee hours without increasing overall costs. So when Blake decided to cut the corporate staff by 10% and shuttered a call center, the savings was earmarked for putting more employees on the floor. Blake also abolished the pay ceilings that existed under Nardelli to hire 3,000 specialized in-store experts, called master trade specialists, whose job it is to provide professional-quality advice to customers. David Schick, managing director and retail analyst at Stifel Nicolaus, applauds the move: "You can either say the housing market's the worst it's been in 30 years, and we're gonna fire everyone, or the housing market's the worst in 30 years, so I'm gonna go out and hire every plumber I could never have hired." Finally, Blake has tackled the company's shockingly low-tech supply chain, which - even today - has stores receiving 80% of their own merchandise directly. So far, the company has opened three regional distribution centers, and the plan is to reach 20 within the next two years, with 75% of goods coming through the centers.

Blake has warmed hearts at Home Depot partly because he seems so genuine, even awkward at times. During his store walk, he hesitates before walking over to greet the cashiers; it's not that he doesn't want to talk to them, but more that he isn't quite sure what to say. "I'm a New Englander by upbringing," he says. "You don't touch people, you're not emotional, you're kind of just not all about connecting with people." He is also far from a good ol' boy. I wonder why he's not hanging out with Tony Stewart, the NASCAR driver of the Home Depot racecar who is visiting the Atlanta headquarters. "Is that not your sport?" I ask. Blake thinks I've said the word "forte" instead. "Congratulations for pronouncing that the right way!" he says, sounding like the Harvard-educated guy he is, before realizing he's misheard me. "No, no, it's not my sport," he says.

For all the goodwill, however, Blake's efforts have yet to pay off in terms of, well, traditional metrics. The stock has fallen 26% since he took over, though it's up 12% this year; earnings fell 24% in 2008's second fiscal quarter, following a first-quarter charge of $547 million to close 15 stores - the first time that's happened in Home Depot's history. I point out that Nardelli was criticized for not moving the stock. "Right - well, the stock has moved." He laughs ruefully. "I finally have moved the stock."

And Blake still has a huge task ahead of him. Claes Forrell, director of the American Customer Satisfaction Index, notes that squandering a service advantage is in some ways worse than never having one, because expectations remain higher. "Once you destroy a strong service culture," says Forrell, "it's very difficult to get it back." Indeed, for all the love we got in Riverside, things were different when I went shopping without a Home Depot exec by my side. In one trip to the Manhattan store on 59th Street, I was greeted warmly, then wandered around for more than 25 minutes - purposely looking lost - before someone finally asked me whether I needed help. At one point, I pressed the red service button - only to hear, after waiting five minutes, a tape-recorded voice announcing the obvious: There was no Home Depot associate available to help me. In the meantime, I saw plenty of employees chatting. There were, indeed, aprons on the floor.

If Blake's timing is right, however, he'll have service up to par just as the economy improves and more consumers decide to give Home Depot a second chance. There are some positive signs. In early September, Blake told a Goldman Sachs retail conference that "we're getting awfully close to the bottom," sparking a rally in the stock. Home Depot is also closing the same-store sales gap with Lowe's, posting the smallest gap in four years in 2008's second quarter. And in terms of customer satisfaction, analyst Schick says that his own proprietary survey, called Stifel Nicolaus R.E.A.D., sees a positive shift. "It had been losing, losing, losing on customer satisfaction," says Schick, who has a buy on the stock. "What we saw in the first quarter of last year was that it stopped its multiyear slide and started to pick up."

Back in Riverside, Blake, now wearing an orange apron, tries to do his part to move the needle on customer service, stopping to coo at a 7-month-old baby and listening sympathetically to a tale about a bunch of pesky mice that have eaten through the rubber of a garbage can a family is using to store birdseed. Blake steers them to a metal can, then congratulates manager Pleskach about the effort being made in the pro department. "Mike, your pro desk was cranking to close out that enormous tile order," he says.

Marcus, meanwhile, thinks he's seeing a difference. "As I go into stores," he says, "I see old faces who have become rejuvenated. I've watched the tempo go from a slow walk to a tango." But Blake knows better than most that it takes two to tango - customers included.  To top of page

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